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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C. 20549**

**FORM10-Q**

**(MARK ONE)**
| **ý** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|------------|----------------------------------------------------------------------------------------------|

**FOR THE PERIOD ENDED JUNE 30,2001**

**OR**
| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

**COMMISSION FILE NUMBER: 0-28324**

**BIOTRANSPLANTINCORPORATED******(EXACT NAME OFREGISTRANT AS SPECIFIED IN ITS CHARTER)

 
| **DELAWARE**                                                    | **04-3119555**                        |
|-----------------------------------------------------------------|---------------------------------------|
| (STATE OR OTHER JURISDICTION  OF INCORPORATION OR ORGANIZATION) | (I.R.S. EMPLOYER  IDENTIFICATION NO.) |
|                                                            |                                  |
| **CHARLESTOWN NAVY YARD, BUILDING 75, THIRD AVENUE**            |
| **CHARLESTOWN, MASSACHUSETTS 02129**                            |
| (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                        |

**(617) 241-5200**(REGISTRANT'STELEPHONE NUMBER, INCLUDING AREA CODE)

             Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days: Yes ý   No o

             Asof August 10, 2001, there were 20,973,204 shares of the Registrant's  Common Stock outstanding.

----

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**BIOTRANSPLANT INCORPORATED ANDSUBSIDIARIESFORM 10-QINDEX**

| PART I.    |  FINANCIAL INFORMATION                                                                                                                                                       |   |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|       |                                                                                                                                                                              |   |
| ITEM  1    | CONDENSED  CONSOLIDATED FINANCIAL STATEMENTS:                                                                                                                                     |   |
|       |                                                                                                                                                                              |   |
|       | Condensed  Consolidated Balance Sheets as of December 31, 2000 and June 30, 2001                                                                                                  |   |
|       |                                                                                                                                                                              |   |
|       | Condensed  Consolidated Statements of Operations for the three and six months ended June  30, 2000 and 2001, and for the period from inception (March 20, 1990) to June  30, 2001 |   |
|       |                                                                                                                                                                              |   |
|       | Condensed  Consolidated Statements of Cash Flows for the six months ended June 30, 2000  and 2001, and for the period from inception (March 20, 1990) to June 30,  2001.          |   |
|       |                                                                                                                                                                              |   |
|       | Notes  to Condensed Consolidated Financial Statements.                                                                                                                            |   |
|       |                                                                                                                                                                              |   |
|       | ITEM  2.  MANAGEMENT'S DISCUSSION AND  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                                             |   |
|       |                                                                                                                                                                              |   |
|       | ITEM  3.  QUANTITIVE AND QUALITATIVE  DISCLOSURES ABOUT MARKET RISKS                                                                                                         |   |
|       |                                                                                                                                                                              |   |
| PART II.   | OTHER INFORMATION                                                                                                                                                                 |   |
| ITEM  1    | -  6.                                                                                                                                                                             |   |
| SIGNATURES |                                                                                                                                                                              |
|            |                                                                                                                                                                                   |        |  |

 

 

 

**PART I. FINANCIAL INFORMATION****ITEM 1. CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

**BIOTRANSPLANT INCORPORATED ANDSUBSIDIARIES**(A Development Stage Company)

**CONDENSED CONSOLIDATED BALANCESHEETS**

|                                        | December 31,  2000                                                                                                                                                                                             |        | June  30, 2001 (Unaudited) |        |
|---------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|--------------------------------------|-------------|
|                                        |                                                                                                                                                                                                                     |        |                                      |        |
|                                        |                                                                                                                                                                                                                |        |                                 |        |
| ASSETS                                      |                                                                                                                                                                                                                |        |                                 |        |
| Current assets:                             |                                                                                                                                                                                                                |        |                                 |        |
|                                        | Cash and cash  equivalents                                                                                                                                                                                          | $           | 11,481,297                           |        | $ | 18,031,833 |   |
|                                        | Short-term investments                                                                                                                                                                                              | 3,391,568   |                                 | 1,043,902   |   |
|                                        | Accounts receivable  from Immerge (note 4)                                                                                                                                                                          | -           |                                 | 1,923,840   |   |
|                                        | Other receivables                                                                                                                                                                                                   | 18,995      |                                 | -           |   |
|                                        | Prepaid expenses and  other current assets                                                                                                                                                                          | 823,899     |                                 | 479,001     |   |
|                                        |                                                                                                                                                                                                                |             |                                 |             |   |
|                                        | Total current assets                                                                                                                                                                                                | 15,715,759  |                                 | 21,478,576  |   |
|                                        |                                                                                                                                                                                                                |             |                                 |             |   |
|                                        |                                                                                                                                                                                                                |        |                                 |        |
| Property and equipment  – net          | 1,337,206                                                                                                                                                                                                           |        | 3,796,080                            |        |
|                                        |                                                                                                                                                                                                                     |        |                                      |        |
|                                        |                                                                                                                                                                                                                |        |                                 |        |
| Investment in Stem  Cell Sciences           | 105,000                                                                                                                                                                                                             |        | -                                    |        |
|                                        |                                                                                                                                                                                                                     |        |                                      |        |
|                                        |                                                                                                                                                                                                                |        |                                 |        |
| Other long-term assets                      | -                                                                                                                                                                                                                   |        | 128,000                              |        |
|                                        |                                                                                                                                                                                                                     |        |                                      |        |
|                                        |                                                                                                                                                                                                                |        |                                 |        |
| Intangible assets –  net (note 9)      | -                                                                                                                                                                                                                   |        | 27,665,847                           |        |
|                                        |                                                                                                                                                                                                                     |        |                                      |        |
| TOTAL ASSETS                                | $                                                                                                                                                                                                                   | 17,157,965  |                                 | $           | 53,068,503 |   |
|                                        |                                                                                                                                                                                                                     |        |                                      |        |
|                                        |                                                                                                                                                                                                                |        |                                 |        |
| LIABILITIES AND STOCKHOLDERS'  EQUITY       |                                                                                                                                                                                                                |        |                                 |        |
| Current liabilities:                        |                                                                                                                                                                                                                |        |                                 |        |
|                                        | Current portion of  long-term debt                                                                                                                                                                                  | $           | 233,333                              |        | $ | 1,165,798 |   |
|                                        | Current obligation  under capital lease                                                                                                                                                                             | 37,486      |                                 | 37,486      |   |
|                                        | Accounts payable                                                                                                                                                                                                    | 408,115     |                                 | 1,727,718   |   |
|                                        | Accrued expenses                                                                                                                                                                                                    | 1,721,745   |                                 | 2,154,964   |   |
|                                        |                                                                                                                                                                                                                |             |                                 |             |   |
|                                        | Total current  liabilities                                                                                                                                                                                          | 2,400,679   |                                 | 5,085,966   |   |
|                                        |                                                                                                                                                                                                                |             |                                 |             |   |
|                                        |                                                                                                                                                                                                                |        |                                 |        |
|                                        | Long-term debt, net of  current portion                                                                                                                                                                             | 252,778     |                                 | 927,927     |   |
|                                        |                                                                                                                                                                                                                |             |                                 |             |   |
|                                        | Long-term obligation  under capital leases, net of current portion                                                                                                                                                  | 82,285      |                                 | 59,012      |   |
|                                        |                                                                                                                                                                                                                |             |                                 |             |   |
| Stockholders' equity:                       |                                                                                                                                                                                                                |        |                                 |        |
|                                        | Preferred stock, $.01  par value, authorized - 2,000,000 shares; issued and outstanding - no shares                                                                                                                 | -           |                                 | -           |   |
|                                        | Common stock, $.01 par  value, authorized - 50,000,000 shares at December 31, 2000 and June 30, 2001;  issued and outstanding – 11,796,120 shares at December 31, 2000 and  19,863,252 shares at June 30, 2001 | 117,962     |                                 | 201,106     |   |
|                                        | Additional paid-in  capital                                                                                                                                                                                         | 83,129,855  |                                 | 148,697,685 |   |
|                                        | Deferred compensation                                                                                                                                                                                               | -           |                                 | (5,209,245  | ) |
|                                        | Accumulated deficit                                                                                                                                                                                                 | (68,825,594 | )                                    | (96,693,948 | ) |
|                                        |                                                                                                                                                                                                                     |        |                                      |        |
|                                        | Total stockholders’  equity                                                                                                                                                                                    | 14,422,223  |                                 | 46,995,598  |   |
|                                        |                                                                                                                                                                                                                     |        |                                      |        |
| TOTAL LIABILITIES AND  STOCKHOLDERS' EQUITY | $                                                                                                                                                                                                                   | 17,157,965  |                                 | $           | 53,068,503 |   |
|                                        |                                                                                                                                                                                                                     |        |                                      |        |
|                                             |                                                                                                                                                                                                                     |             |                                      |             |  |  |  |  |  |

Theaccompanying notes are an integral part of thesecondensed consolidated financial statements.

**CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS**(Unaudited)

|                                         | Three  Months Ended   June 30,       |       | Six  Months Ended   June 30, |       | Cumulative  Since  Inception |      |
|----------------------------------------------|--------------------------------------|------------|------------------------------|------------|------------------------------|-----------|
|                                         | 2000                                 |       | 2001                         |       | 2000                         |      | 2001 |   |   |
|                                         |                                      |       |                              |       |                              |      |  |   |  |   |
|                                         |                                 |       |                         |       |                         |      |   |   |   |   |
| Revenues:                                    |                                 |       |                         |       |                         |      |   |   |   |   |
|                                         | License fees                         | $          | -                            |       | $                            | -         |   | $ | - |   | $ | - |   | $ | 18,500,000 |   |
|                                         | Research and  development            | 1,488,500  |                         | -          |                         | 2,977,000 |   | - |   | 36,815,450 |   |
|                                         |                                 |            |                         |            |                         |           |   |  |   |  |   |
|                                         | Total revenues                       | 1,488,500  |                         | -          |                         | 2,977,000 |   | - |   | 55,315,450 |   |
|                                         |                                 |            |                         |            |                         |           |   |  |   |  |   |
|                                         |                                 |       |                         |       |                         |      |   |   |   |   |
| Expenses:                                    |                                 |       |                         |       |                         |      |   |   |   |   |
|                                         | Research and  development            | 3,633,849  |                         | 2,906,003  |                         | 7,325,031 |   | 4,891,170 |   | 112,806,447 |   |
|                                         | General and  administrative          | 617,457    |                         | 882,126    |                         | 1,228,035 |   | 1,363,852 |   | 22,739,471 |   |
|                                         | Amortization of  intangible assets   | -          |                         | 503,020    |                         | -         |   | 503,020 |   | 503,020 |   |
|                                         | Stock-based  compensation            | -          |                         | 1,350,029  |                         | -         |   | 1,350,029 |   | 1,350,029 |   |
|                                         | In-process research  and development | -          |                         | 20,000,000 |                         | -         |   | 20,000,000 |   | 20,000,000 |   |
|                                         |                                 |            |                         |            |                         |           |   |  |   |  |   |
|                                         | Total expenses                       | 4,251,306  |                         | 25,641,178 |                         | 8,553,066 |   | 28,108,071 |   | 157,398,967 |   |
|                                         |                                 |            |                         |            |                         |           |   |  |   |  |   |
| Operating loss                               | (2,762,806                           | )          | (25,641,178                  | )          | (5,576,066                   | )         | (28,108,071 | ) | (102,083,517 | ) |
|                                         |                                      |       |                              |       |                              |      |  |   |  |   |
|                                         |                                 |       |                         |       |                         |      |   |   |   |   |
|                                         | Interest income                      | 370,619    |                         | 111,600    |                         | 700,031   |   | 281,411 |   | 7,268,736 |   |
|                                         | Interest expense                     | (16,090    | )                            | (27,232    | )                            | (31,170   | ) | (41,693 | ) | (1,879,167 | ) |
|                                         |                                 |            |                         |            |                         |           |   |  |   |  |   |
| Net loss                                     | $                                    | (2,408,277 | )                            | $          | (25,556,810                  | )         | $ | (4,907,205 | ) | $ | (27,868,353 | ) | $ | (96,693,948 | ) |
|                                         |                                      |       |                              |       |                              |      |  |   |  |   |
|                                         |                                 |       |                         |       |                         |      |   |   |   |   |
| Basic and diluted net  loss per common share | $                                    | (0.21      | )                            | $          | (1.76                        | )         | $ | (0.43 | ) | $ | (2.12 | ) |   |   |
|                                         |                                      |       |                              |       |                              |      |  |   |   |   |
|                                         |                                 |       |                         |       |                         |      |   |   |   |   |
| Weighted average  common shares outstanding  | 11,679,739                           |       | 14,500,556                   |       | 11,356,351                   |      | 13,153,909 |   |   |   |
|                                         |                                      |       |                              |       |                              |      |  |   |   |   |
|                                              |                                      |            |                              |            |                              |           |  |  |  |  |  |  |  |  |  |  |  |  |  |

Theaccompanying notes are an integral part of thesecondensed consolidated financial statements.

**CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**(Unaudited)

|                                                  | Six  Months Ended   June 30,                                                                                               |       | Cumulative  Since  Inception |        |
|-------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|
|                                                  | 2000                                                                                                                       |       | 2001                         |        |   |
|                                                  |                                                                                                                            |       |                              |        |  |   |
| Cash flows from  operating activities:                |                                                                                                                       |       |                         |        |   |   |
|                                                  | Net loss                                                                                                                   | $          | (4,907,205                   | )           | $ | (27,868,353 | ) | $ | (96,693,948 | ) |
|                                                  | Adjustments to  reconcile net loss to net cash used in operating activities:                                               |       |                         |        |   |   |   |
|                                                  | Depreciation and  amortization                                                                                             | 206,323    |                         | 294,340     |   | 4,602,519 |   |
|                                                  | Amortization of  intangible assets                                                                                         | -          |                         | 503,020     |   | 503,020 |   |
|                                                  | Stock-based  compensation                                                                                                  | -          |                         | 1,350,029   |   | 1,350,029 |   |
|                                                  | In-process research  and development                                                                                       | -          |                         | 20,000,000  |   | 20,000,000 |   |
|                                                  | Noncash interest  expense                                                                                                  | -          |                         | -           |   | 465,477 |   |
|                                                  | Noncash expenses  related to options and warrants                                                                          | -          |                         | -           |   | 1,186,785 |   |
|                                                  | Changes in current  assets and liabilities:                                                                                |       |                         |        |   |   |   |
|                                                  | Accounts receivable                                                                                                        | (206,650   | )                            | (1,896,977  | ) | (1,915,972 | ) |
|                                                  | Deposits and prepaid  expenses                                                                                             | 155,281    |                         | 870,831     |   | 46,932 |   |
|                                                  | Accounts payable                                                                                                           | 8,594      |                         | (610,698    | ) | (202,583 | ) |
|                                                  | Accrued expenses                                                                                                           | (91,276    | )                            | (2,736,311  | ) | (1,014,565 | ) |
|                                                  | Deferred revenue                                                                                                           | (2,750,000 | )                            | -           |   | - |   |
|                                                  |                                                                                                                       |            |                         |             |   |  |   |
|                                                  | Net cash used in  operating activities                                                                                     | (7,584,933 | )                            | (10,094,119 | ) | (71,672,306 | ) |
|                                                  |                                                                                                                       |            |                         |             |   |  |   |
|                                                  |                                                                                                                       |       |                         |        |   |   |
| Cash flows from  investing activities:                |                                                                                                                       |       |                         |        |   |   |
|                                                  | Purchases of property  and equipment                                                                                       | (88,533    | )                            | (112,734    | ) | (5,147,796 | ) |
|                                                  | Disposal of property  and equipment, net                                                                                   | -          |                         | -           |   | 40,980 |   |
|                                                  | Purchases of investments                                                                                                   | (3,123,356 | )                            | (1,047,332  | ) | (77,780,330 | ) |
|                                                  | Proceeds from  investments                                                                                                 | 3,731,713  |                         | 3,395,000   |   | 76,736,363 |   |
|                                                  | (Increase) decrease in  investment in Stem Cell Sciences                                                                   | -          |                         | 105,000     |   | 160,000 |   |
|                                                  | Cash paid for  transaction costs, net of cash received in   acquisition of Eligix, Inc.                                    | -          |                         | (3,488,715  | ) | (3,488,715 | ) |
|                                                  |                                                                                                                       |            |                         |             |   |  |   |
|                                                  | Net cash provided by  (used in) investing activities                                                                       | 519,824    |                         | (1,148,781  | ) | (9,479,498 | ) |
|                                                  |                                                                                                                       |            |                         |             |   |  |   |
|                                                  |                                                                                                                       |       |                         |        |   |   |
| Cash flows from  financing activities:                |                                                                                                                       |       |                         |        |   |   |
|                                                  | Proceeds from  convertible notes payable to stockholders                                                                   | -          |                         | -           |   | 9,400,000 |   |
|                                                  | Payments of long-term  debt                                                                                                | (122,476   | )                            | (195,010    | ) | (408,899 | ) |
|                                                  | Payments of  obligations under capital leases                                                                              | -          |                         | (23,274     | ) | (2,217,484 | ) |
|                                                  | Proceeds from  sale/leaseback of equipment                                                                                 | -          |                         | -           |   | 771,968 |   |
|                                                  | Net proceeds from  long-term debt                                                                                          | -          |                         | -           |   | 700,000 |   |
|                                                  | Net proceeds from  equipment leases                                                                                        | -          |                         | -           |   | 1,542,010 |   |
|                                                  | Net proceeds from sale  of redeemable convertible preferred stock                                                          | -          |                         | -           |   | 25,661,526 |   |
|                                                  | Proceeds from sale of  common stock                                                                                        | 9,656,774  |                         | 18,011,720  |   | 63,734,516 |   |
|                                                  |                                                                                                                       |            |                         |             |   |  |   |
|                                                  | Net cash provided by  (used in) financing activities                                                                       | 9,534,298  |                         | 17,793,436  |   | 99,183,637 |   |
|                                                  |                                                                                                                       |            |                         |             |   |  |   |
|                                                  |                                                                                                                       |       |                         |        |   |   |
| Net increase  (decrease) in cash and cash equivalents | 2,469,189                                                                                                                  |       | 6,550,536                    |        | 18,031,833 |   |
|                                                  |                                                                                                                       |       |                         |        |   |   |
| Cash and cash equivalents,  beginning of period       | 17,648,789                                                                                                                 |       | 11,481,297                   |        | - |   |
|                                                  |                                                                                                                            |       |                              |        |  |   |
|                                                  |                                                                                                                       |       |                         |        |   |   |
| Cash and cash  equivalents, end of period             | $                                                                                                                          | 20,117,978 |                         | $           | 18,031,833 |   | $ | 18,031,833 |   |
|                                                  |                                                                                                                            |       |                              |        |  |   |
|                                                  |                                                                                                                       |       |                         |        |   |   |
| Supplemental  disclosures and noncash transactions:   |                                                                                                                       |       |                         |        |   |   |
|                                                  | Equipment acquired  under capital leases                                                                                   | $          | -                            |        | $ | - |   | $ | 2,329,941 |   |
|                                                  |                                                                                                                       |            |                         |             |   |  |   |
|                                                  |                                                                                                                       |       |                         |        |   |   |   |
|                                                  | Conversion of  convertible notes payable to stockholders and accrued interest into  redeemable convertible preferred stock | $          | -                            |        | $ | - |   | $ | 9,905,710 |   |
|                                                  |                                                                                                                       |            |                         |             |   |  |   |
|                                                  |                                                                                                                       |       |                         |        |   |   |   |
|                                                  | Conversion of  preferred stock into common stock                                                                           | $          | -                            |        | $ | - |   | $ | 36,202,290 |   |
|                                                  |                                                                                                                       |            |                         |             |   |  |   |
|                                                  |                                                                                                                       |       |                         |        |   |   |   |
|                                                  | Issuance of warrants                                                                                                       | $          | -                            |        | $ | - |   | $ | 741,737 |   |
|                                                  |                                                                                                                       |            |                         |             |   |  |   |
|                                                  |                                                                                                                       |       |                         |        |   |   |   |
|                                                  | Interest paid during  the period                                                                                           | $          | 29,143                       |        | $ | 44,876 |   | $ | 1,510,303 |   |
|                                                  |                                                                                                                       |            |                         |             |   |  |   |
|                                                  |                                                                                                                       |       |                         |        |   |   |
|                                                       |                                                                                                                            |            |                              |             |  |  |  |  |  |  |  |  |

Theaccompanying notes are an integral part of thesecondensed consolidated financial statements.

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**(Unaudited)

**1.  OPERATIONS ANDBASIS OF PRESENTATION**

             BioTransplantIncorporated (the “Company”) was incorporated on March 20, 1990. The Company isdeveloping pharmaceutical products and systems to enable the body’s immunesystem to better tolerate the transplantation of foreign cells, tissues andorgans.  Based on BioTransplant’sproprietary technology, both alone and in collaboration with others,BioTransplant is seeking to develop a portfolio of products designed to improvetherapies associated with organ and bone marrow transplantation as well as toimprove the treatment of cancer, autoimmune diseases and blood disorders.

             TheCompany is in the development stage and is devoting substantially all of itsefforts toward product research and development and raising capital. TheCompany is subject to a number of risks similar to those of other developmentstage companies, including risks related to: its dependence on key individualsand collaborative research partners, competition from substitute products andlarger companies, its ability to develop and market commercially usableproducts and obtain regulatory approval for its products under development, andits ability to obtain the substantial additional financing necessary toadequately fund the development of its products.

             Theinterim financial statements herein have been prepared by the Company, withoutaudit, pursuant to the rules and regulations of the Securities and ExchangeCommission ("SEC") and include, in the opinion of management, alladjustments, consisting of normal, recurring adjustments, necessary for a fairrepresentation of interim period results. Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith generally accepted accounting principles have been condensed or omittedpursuant to such rules and regulations. The results for the interim periodspresented are not necessarily indicative of results to be expected for thefiscal year or any future period. These condensed consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements and the notes thereto included in the Company's AnnualReport on  Form 10-K for the year endedDecember 31, 2000, as filed with the SEC.

**2.  CASH EQUIVALENTSAND INVESTMENTS**

Cash equivalents include short-term,highly liquid investments with original maturities of less than ninety daysfrom the date of purchase. Short-term investments consist primarily ofcorporate notes and securities issued by the United States Treasury or otherUnited States government agencies with original maturities of greater thanthree months and remaining maturities of less than one year.  In accordance with Financial AccountingStandards Board Statement No. 115, "Accounting for Certain Investments inDebt and Equity Securities", the Company's investments are classified as held-to-maturityand are stated at amortized cost, which approximates market value.

The Company held the followinginvestments at December 31, 2000 and June 30, 2001:

|                                             |                                                                                                 | December  31,  2000 |       | June  30,  2001 |    |
|--------------------------------------------------|------------------------------------------------------------------------------------------------------|---------------------|------------|-----------------|---------|
|                                             |                                                                                                 |                     |       |                 |    |
| Cash and cash  equivalents                       |                                                                                                 | $                   | 11,481,297 |            | $       | 18,031,833 |   |
|                                             |                                                                                                 |                     |       |                 |    |
|                                             |                                                                                                 |                |       |            |    |
| Short-term Investments                           |                                                                                                 |                |       |            |    |
|                                             | United States Treasury  and Agency Securities   (average maturity of 4 months at June 30, 2001)      |                | —     |            | 540,612 |   |
|                                             | Corporate Bonds  (average maturity of 2 months at   December 31, 2000 and 4 months at June 30, 2001) |                | 1,897,640  |            | 503,290 |   |
|                                             | Commercial Paper  (average maturity of 1 month at   December 21, 2000)                               |                | $          | 1,493,928       |    | — |   |
|                                             |                                                                                                 |                     |       |                 |    |
|                                             |                                                                                                 |                |       |            |    |
| Total cash and cash  equivalents and investments |                                                                                                 | $                   | 14,872,865 |            | $       | 19,075,735 |   |
|                                             |                                                                                                 |                     |       |                 |    |

 

             In order to provide its consent tothe Eligix acquisition (see Note 9), a bank has required the Company to securethe outstanding balance on a term note (see Note 6) with cash funds until theearlier of the date the loan is paid off or the company raises additional funds.  The Company transferred $540,000 into arestricted cash account during April 2001 in order to meet thisrequirement.  As of June 30, 2001, thisamount is still restricted.  The Companyexpects that the restricted cash will be released from the restricted accountas a result of the financing completed in June 2001 (see Note 11).

**3.  NET LOSS PERCOMMON SHARE**

Net loss per common share is based on theweighted average number of common shares outstanding during the periodspresented, in accordance with Financial Accounting Standards Board StatementNo. 128, "Earnings Per Share". Diluted net loss per common share isthe same as basic net loss per common share as the inclusion of common stockissuable pursuant to options and warrants would be antidilutive. Antidilutivesecurities not included consist of 428,783 shares issuable pursuant to commonstock options and 212,496 shares issuable pursuant to common stock warrants.

**4.   IMMERGEBIOTHERAPEUTICS, INC.**

             InSeptember 2000, the Company and Novartis entered into an agreement to combinetheir respective expertise in the field of xenotransplantation into anewly-formed, independently-run company named Immerge BioTherapeutics AG("Immerge"). Immerge began operations in January 2001. In return forcontributing its technology and an aggregate of $30 million in funding overthree years beginning January 1, 2001, Novartis obtained a 67% ownership shareof Immerge and the exclusive worldwide, royalty-bearing rights to thedevelopment and commercialization of any xenotransplantation products resultingfrom Immerge's research. In return for contributing its technology,BioTransplant obtained a 33% share of Immerge and will receive royalty paymentsfrom Novartis sales of xenotransplantation products, if any.

             InDecember 2000, Immerge formed a wholly-owned Delaware operating subsidiary,Immerge BioTherapeutics, Inc. Effective January 1, 2001, BioTransplant enteredinto a contract research agreement with the Delaware subsidiary, under whichBioTransplant has committed approximately 20 full-time employees to performspecified research activities exclusively for Immerge and has agreed to provideadministrative services and support at agreed upon rates.  Amounts due BioTransplant under thisagreement are being recorded as offsets to the relevant BioTransplant expensesincurred.  For the six months ended June30, 2001, BioTransplant has recorded offsets to its expenses of approximately$3.0 million for research and development services and approximately $488,000for general and administrative services and support provided under theagreement.  Of this amount,approximately $1.9 million is included as accounts receivable from Immerge atJune 30, 2001.

**5.  REVENUERECOGNITION**

             Substantiallyall of the Company's license and research and development revenues were derivedfrom three collaborative research arrangements. Annual research and developmentpayments were recognized on a straight-line basis over the period of thecontract, which approximates when work is performed and costs are incurred.License fee revenue represents technology transfer fees received for rights tocertain technology of the Company. Prior to the adoption of SEC StaffAccounting Bulletin No. 101 “Revenue Recognition” (“SAB 101”)  during 2000, the Company recorded licensefees as revenue when all obligations as defined in the individual arrangementsare fulfilled by the Company and there is no risk of refund.  Research and development expenses in theaccompanying consolidated statements of operations include funded and unfundedexpenses.

             SAB101 requires companies to recognize certain upfront non-refundable fees andmilestone payments over the life of the related alliance when such fees arereceived in conjunction with alliances which have multiple elements. The Companyadopted this new accounting principle through a cumulative charge to thestatement of operations, in accordance with Accounting Principles Board Opinion(APB) No. 20, "Accounting Changes", no later than the fourth quarterof 2000, effective January 1, 2000.  The adoption of this statement, consisting of the cumulative effect ofthe accounting change and the current year effect, did not have a materialimpact on the Company’s financial statements for the year ended December 31,2000 or the quarter ended June 30, 2001.

**6.  DEBT**

             InSeptember 1997, the Company entered into a term note with a bank, whereby theCompany could borrow up to $500,000 for certain equipment and fixtures during aspecified drawdown period, after which time the outstanding balance will becomepayable in 36 equal monthly principal installments plus interest. During 1999,the Company amended the term note to extend the drawdown period and increaseits availability to $1.0 million under the same conditions of the original termnote. Borrowings under the term note bear annual floating interest at thebank's Prime Rate (6.75% at June 30, 2001) during the drawdown period with anoption to convert during the repayment period to an annual fixed rate at thethree-month London Interbank Offered Rate ("LIBOR") (5.06% at June30, 2001) plus 2.25%. Borrowings under the term note are secured by equipmentand fixtures purchased using the proceeds of the note. There were $369,000 inborrowings outstanding under this term note at June 30, 2001.  The Company is required to maintain certainfinancial covenants under the agreement. As of June 30, 2001, the Company is in compliance with thesecovenants.  In order to provide itsconsent to the acquisition of Eligix, Inc. (see Note 9), the bank required the Companyto secure the outstanding balance on the note as well as an amount equal to thetotal credit available to the Company through corporate credit cards, with cashfunds until the loan is paid off.  TheCompany transferred $540,000 into a restricted cash account during April 2001in order to meet this requirement.  TheCompany has classified this restricted cash as short-term investments at June30, 2001.

             Inconnection with the acquistion of Eligix (see Note 9), the Company has become aco-borrower on two loan and security agreements.  The first was entered into in September 1997 and allows theCompany to borrow up to $750,000.  Theminimum funding amount is $100,000 with a maximum of five loans.  Loans under the agreement bear interest at afixed rate equal to the yield to maturity for the U.S. Treasury note having aterm equivalent with the loan’s term on the date of funding plus 300 basispoints.  The loans are collateralized bycertain equipment.  There were $332,000in borrowings outstanding under this term note at June 30, 2001.

             Thesecond loan and security agreement was entered into in June 1999 and allows theCompany to borrow up to $2,700,000.  Theminimum funding amount is $35,000.  Eachnote will have a fixed term of 42 months. Loans under the agreement bear interest at a fixed rate equal to theprime rate on the date of commencement plus the average interest rate of asimilar term U.S Treasury note for the week preceding the date ofcommencement.  The loans arecollateralized by certain equipment. There were $1.4 million in borrowings outstanding under this term noteat June 30, 2001.

             Theweighted average interest rate on these Eligix loan and security agreementsoutstanding was 11.8% at December 31, 2000

**7.  SEGMENT REPORTING**

             TheCompany has adopted Statement of Financial Accounting Standards Board (SFAS)No. 131, "Disclosures about Segments of an Enterprise and RelatedInformation" ("SFAS 131") which establishes standards forreporting information about operating segments. In accordance with SFAS 131,the Company believes that it operates in one operating segment.

**8. COMPREHENSIVE INCOME**

             SFASNo. 130, "Reporting Comprehensive Income" establishes standards forreporting and display of comprehensive income and its components (revenues,expenses, gains and losses) in a full set of general-purpose financialstatements.  There are no materialdifferences between the Company's reported income and comprehensive income forall periods presented.

**9. ELIGIX ACQUISITION**

             OnMay 15, 2001, the Company completed its acquisition of Eligix.  Under the terms of the merger agreement, awholly-owned subsidiary of BioTransplant, BT/EL Acquisition Co., merged withand into Eligix and the security holders of Eligix will be entitled to receiveup to an aggregate of 5,610,000 shares of BioTransplant common stock, either inthe merger or upon exercise or conversion of Eligix options and warrantsassumed by BioTransplant in the merger. 561,000 shares were deposited in an escrow account that may be used tocompensate BioTransplant if BioTransplant is entitled to indemnification underthe merger agreement. Any indemnification escrow shares that, 15 monthsfollowing the completion of the merger, have not been used to indemnifyBioTransplant and that are not subject to any unresolved claims forindemnification by BioTransplant, will be distributed to the Eligixstockholders. In addition, all Eligix stockholders had an additional 561,000 oftheir BioTransplant stock deposited in an escrow account to secure achievementby Eligix of CE mark approval by the European Union of Eligix' TCell-HDMproduct by December 31, 2001. If the European Union does not allow Eligix toaffix the CE mark, which denotes conformity to European standards for safety,to its TCell-HDM product by December 31, 2001, the Eligix stockholders will notreceive any of the shares allocated to secure achievement of the milestone.

             Inaccordance with APB No. 16, *Business Combinations,*the purchase pricefor Eligix has been allocated to the assets and liabilities of Eligix basedupon their respective fair values.  Theaggregate purchase price based upon the fair market value of BioTransplantcommon stock was $45.5 million, including the value of the outstanding optionsand warrants to purchase the Company’s common stock and the transaction costsrelated to the merger.

             Thepurchase price was allocated to the assets acquired based upon independentappraisal which used proven valuation tools and techniques.  Significant portions of the purchase pricewere identified as intangible assets which included in-process research anddevelopment (IPR&D) of $20.0 million and acquired technology of $25.0million.  The excess of the purchaseprice over the fair value of identified intangible and tangible net assets of$3.2 million has been allocated to goodwill. Intangible assets are being amortized over their estimated useful lifeof seven years.  The fair value of theIPR&D relating to current in-process research and development projects wasrecorded as an expense as of the merger date.

             Theaggregate purchase price of $45.5 million, including acquistion costs, wasallocated as follows:

| Current assets                       |   | $          | 998,000    |   |
|--------------------------------------|--------|------------|------------|--------|
| Property and equipment               |   | 2,640,000  |       |
| In-process research  and development |   | 20,000,000 |       |
| Acquired technology                  |   | 25,000,000 |       |
| Deferred compensation                |   | 483,000    |       |
| Other assets                         |   | 128,000    |       |
| Goodwill                             |   | 3,169,000  |       |
| Acquired liabilities                 |   | (6,902,000 | )          |
|                                 |   |            |       |
|                                 |   | $          | 45,516,000 |   |
|                                 |   |            |            |   |

 

              As of June 30, 2000, intangible assets, netrelates entirely to the Eligix merger and consists of the following:

| Acquired technology            |   | $         | 25,000,000 |   |
|--------------------------------|--------|-----------|------------|--------|
| Goodwill                       |   | 3,169,000 |       |
|                           |   |           |       |
|                           |   | $         | 28,169,000 |   |
| Less accumulated  amortization |   | 503,000   |       |
|                           |   |           |       |
|                           |   | $         | 27,666,000 |   |

 

             Forthe three and six months ended June 30, 2001, the Company recorded $503,000 inamortization expense related to the acquired technology and goodwill.  Additionally, the Company recorded$32,000  in stock based compensationrelated to the vesting of stock options held by employees and consultants ofEligix.  The Company also reverseddeferred compensation of $5,000 related to options forfeited by terminatedemployees.

             Inconnection with the merger, certain employees of Eligix received an aggregateof 990,000 shares of BioTransplant common stock under the Eligix management equityincentive plan. These shares vest over a 365-day period following the closingof the merger, with 33 1/3% of the shares vesting 90 days after closing of themerger, an additional 33 1/3% of the shares vesting 180 days after the closingof the merger, an additional 23 1/3% of the shares vesting 270 days after theclosing of the merger and the remaining 10% of the shares vesting 365 daysafter the closing of the merger. If, within 365 days after the closing of themerger, BioTransplant terminates a former Eligix management member other thanfor cause, or a management member terminates his or her employment for goodreason, that management member's shares will vest immediately in full upontermination. Otherwise, BioTransplant will have the right to repurchase aterminated management member's unvested shares for $.01per share. Of theseshares, 99,000 are being held in escrow for 15 months following the completionof the merger to compensate BioTransplant if it is entitled to indemnificationunder the merger agreement and 99,000 shares are being held in escrow to secureachievement by Eligix of CE mark approval by the European Union of itsTCell-HDM product by December 31, 2001. The value of the 990,000 shares less99,000 shares held in escrow to secure achievement of that CE Mark Approval bythe European Union of its Tcell-HDM product are being treated as deferredcompensation and are being expensed over the 365-day vesting period. The pershare price used to determine the value of these shares was $6.84, the fairmarket value of BioTransplant common stock on the closing date of the merger.Accordingly, at the merger date, $6,094,000 was recorded as deferredcompensation and will be recorded as stock-based compensation over the 365-dayvesting period of the shares. Additionally, shares held in escrow to secure the achievement of CE markapproval will be valued using the fair market value of BioTransplant commonstock on the date these shares are released from escrow.

             Duringthe three months ended June 30, 2001, the Company amortized $1,350,000 ofdeferred compensation including approximately $638,000 related to thetermination of an Eligix employee as the vesting of these shares wereaccelerated in full.  This entire amountis included as stock based compensation expense in the accompanying statementof operations for the three and six months ended June 30, 2001.  Additionally, the Company reversed deferredcompensation of $13,000 related to the shares forfeited by terminatedemployees.

             Unauditedpro forma operating results for the Company, assuming the merger occurred atthe beginning of the periods presented are as follows:

|               |   | Three  months ended June 30, |        | Six  months ended June 30, |   |
|--------------------|--------|------------------------------|-------------|----------------------------|--------|
|               |   | 2000                         |        | 2001                       |   | 2000 |   | 2001 |   |
|               |   |                         |        |                       |   |   |   |   |   |
| Revenues           |   | $                            | 1,488,500   |                       | $      | - |   | $ | 2,977,000 |   | $ | - |   |
| Net loss           |   | $                            | (7,671,000) |                       | $      | (7,455,000) |   | $ | (5,561,000 | ) | $ | (12,712,000 | ) |
| Net loss per share |   | $                            | (0.49)      |                       | $      | (0.42) |   | $ | (1.02) |   | $ | (0.74) |   |

             Forpurposes of these pro forma operating results, the IPR&D was assumed tohave been written off prior to the pro forma periods, so that operating resultspresented only include recurring costs.

**10. PRIVATE PLACEMENT**

             OnJune 8, 2001, the Company completed a private placement of its common stock fornet proceeds of approximately $17.9 million. Investors purchased 3,022,457 shares of common stock at a purchase priceof $6.30 per share.  All proceeds fromthis private placement will be used for general corporate purposes

**11. RECENT ACCOUNTING PRONOUNCEMENTS**

             InJuly 2001, the FASB issue SFAS No. 141, “Business Combinations”.  SFAS No. 141 improves the transparency ofthe accounting and reporting for business combinations by requiring that allbusiness combinations are accounted for under a single method, the purchasemethod.  This statement is effective forall business combinations initiated after June 30, 2001.

             InJuly 2001, the FASB issued SFAS No. 142,” Goodwill and Other IntangibleAssets”.  This statement applies tointangibles and goodwill acquired after June 30, 2001, as well as goodwill andintangibles previously acquired.  Underthis statement goodwill as well as other intangibles determined to have aninfinite life will no longer be amortized; however, these assets will bereviewed for impairment on a periodic basis. This statement is effective for the Company for its first quarter of2002.  Management is currentlyevaluating the impact that this statement will have on the Company’s financialstatements.  Management does not believethe adoption of this statement will have a material impact on the Company'sfinancial statements.

.

**ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

This Quarterly Report on Form 10-Qcontains forward-looking statements. For this purpose, any statements containedherein that are not statements of historical fact may be deemed to beforward-looking statements. Without limiting the foregoing, the words"believes," "anticipates," "plans,""expects," "intends," and similar expressions are intendedto identify forward-looking statements. There are a number of important factorsthat could cause the Company's actual results to differ materially from thoseindicated by such forward-looking statements. These factors include, withoutlimitation, those set forth below and elsewhere in this Quarterly Report onForm 10-Q and in the Section titled "Business - Factors That May AffectResults" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2000, as filed with the SEC, which Section is incorporated hereinby reference.

**OVERVIEW**

             Sincecommencement of operations in 1990, BioTransplant has been engaged primarily inthe research and development of pharmaceutical products and systems to enablethe body's immune system to better tolerate the transplantation of foreign cells,tissues and organs. The major sources of BioTransplant's working capital havebeen the proceeds from sales of equity securities, sponsored research fundingand license fees, capital lease financings and borrowings under a term loan.BioTransplant has not generated any revenues from the sale of products to date,and does not expect to receive substanatial product revenues for several years,if ever. BioTransplant will be required to conduct significant additionalresearch, development, testing and regulatory compliance activities that,together with general and administrative expenses, are expected to result insignificant and increasing operating losses for at least the next severalyears.

             From1993 through October 2000, BioTransplant was a party to two collaborationagreements with Novartis to research, develop and commercializexenotransplantation products. During the collaboration, BioTransplant receivedan aggregate of $33.5 million in research funding and $16.5 million in licensefees and milestone payments from Novartis. In September 2000, BioTransplantentered into an arrangement with Novartis to terminate their priorcollaborations and combine their respective expertise in the field ofxenotransplantation into a newly-formed Swiss company, Immerge BioTherapeuticsAG, which began operations in January 2001.

             Novartishas committed to provide an aggregate of $30.0 million in research funding overthree years to the joint venture. Both BioTransplant and Novartis haveexclusively licensed to the joint venture patent rights and technology in thefield of xenotransplantation. The joint venture has granted to Novartis anexclusive, worldwide royalty-bearing license to develop and commercialize anyxenotransplantation products resulting from the joint venture's research.BioTransplant will receive royalties from the sale of xenotransplantationproducts by Novartis, if any.

             InDecember 2000, Immerge BioTherapeutics AG formed a wholly-owned Delawaresubsidiary, Immerge BioTherapeutics, Inc. BioTransplant has entered into acontract research agreement with the Delaware subsidiary, under whichBioTransplant will commit approximately 20 full-time employees to performresearch and will provide administrative services, at rates specified in theagreement.

             Novartisholds 67% of the shares of the joint venture and BioTransplant holds theremaining 33%. All income, gain, profit or loss of the joint venture will beallocated to BioTransplant and Novartis pro rata based upon their respectiveequity ownership of the joint venture in effect in the period in which theseitems accrue. Initially, the board of directors of Immerge BioTherapeutics,Inc. will consist of four directors: one selected by BioTransplant, oneselected by Novartis and two additional directors, one each designated byBioTransplant and Novartis, who are experts in the field ofxenotransplantation. Immerge BioTherapeutics AG has agreed not to undertake, orpermit its subsidiaries to undertake, specified fundamental corporate actionswithout the consent of both shareholders.

             InOctober 1995, BioTransplant and MedImmune entered into a collaborative researchagreement for the development of products to treat and prevent organ rejection.MedImmune paid BioTransplant a $2.0 million license fee at the time of executionof the agreement, and agreed to fund and assume responsibility for clinicaltesting and commercialization of the BTI-322 monoclonal antibody and otherrelated products. MedImmune has provided $2.0 million of non-refundableresearch support and has agreed to make milestone payments which could total upto an additional $11.0 million. Any milestone payments which are received arerepayable from royalties on the BTI-322 monoclonal antibody and other relatedproducts.

             OnMay 15, 2001, the Company completed its acquisition of Eligix through a reversetriangular merger (see note 9 of Notes to Condensed Consolidated FinancialStatements).  Upon consummation of themerger, Eligix became a wholly-owned subsidiary of the Company. Under the termsof the merger, the Company issued up to 5,610,000 shares of common stock,either in the merger or upon exercise or conversion of Eligix options andwarrants assumed by BioTransplant in the merger, in exchange for the fullydiluted common stock of Eligix.  TheCompany also issued 990,000 shares of common stock to certain employees ofEligix.  The shares issued to Eligixemployees are subject to a repurchse option which lapses over a one yearperiod.   The Company has accounted forthe merger as a purchase of Eligix.

 

**RESULTS OF OPERATIONSTHREE MONTHS ENDED JUNE 30, 2001 AND 2000**

             Therewere no revenues for the three months ended June 30, 2001 compared to $1.5million for the three months ended June 30, 2000. The absence of revenue duringthe three months ended June 30, 2001 was due to the termination of the Novartiscollaborative research agreement which provided $1.5 million in funding for thethree months ended June 30, 2000.  Asdiscussed more fully in Note 4 of the Notes to Condensed Consolidated FinancialStatements, reimbursements from and charges to Immerge BioTherapeutics, Inc.are being recorded as offsets to the relevant BioTransplant expense categorybeginning in the first quarter of 2001.

             Researchand development expenses decreased to $2.9 million for the three months endedJune 30, 2001 from $3.6 million for the three months ended June 30, 2000. Thisdecrease was primarily due to the reimbursement of personnel and relatedsupport costs for approximately 20 research employees dedicated to Immerge anddecreased levels of external research support in 2001.  This decrease was partially offset byapproximately $399,000 of expenses related to the consolidation of Eligixoperations for the period from the date of the merger to June 30, 2001 whichare included in expenses for the three months ended June 30, 2001.

             Generaland administrative expenses increased to $882,000 for the three months endedJune 30, 2001 compared to $617,000 for the three months ended June 30,2000.  This increase was due to theinclusion of approximately $272,000 of expenses related to the consolidation ofEligix operations which are included in expenses for the three months endedJune 30, 2001 for the period from the date of the merger to June 30, 2001.

             Interestincome decreased to $112,000 for the three months ended June 30, 2001 from$370,000 for the three months ended June 30, 2000. The decrease was dueprimarily to lower cash balances available for investment purposes and lowerinterest rates in 2001.

             Asa result of the above factors and approximately $21.8 million of non-cashEligix merger-related expenses (see Note 9 to the Noted to CondensedConsolidated Financial Statements) charged to expenses, the Company generated anet loss for the three months ended June 30, 2001 of $25.6 million, or $1.76per share, compared to a net loss of $2.4 million, or $0.21 per share for thethree  months ended June 30, 2000.

**SIX MONTHS ENDED JUNE 30, 2001 AND 2000**

             Therewere no revenues for the six months ended June 30, 2001 compared to $3.0million for the six months ended June 30, 2000. The absence of revenue duringthe six months ended June 30, 2001was due to the termination of the Novartiscollaborative research agreement which provided $3.0 million in funding for thesix months ended June 30, 2000.  Asdiscussed more fully in Note 4 of the Notes to Condensed Consolidated FinancialStatements, reimbursements from and charges to Immerge BioTherapeutics, Inc.are being recorded as offsets to the relevant BioTransplant expense categorybeginning in the first quarter of 2001.

             Researchand development expenses decreased to $4.9 million for the six months endedJune 30, 2001 from $7.3 million for the six months ended June 30, 2000. Thisdecrease was primarily due to the reimbursement of personnel and related supportcosts for approximately 20 research employees dedicated to Immerge anddecreased levels of external research support in 2001.  This decrease was partially offset byapproximately $399,000 of expenses related to the consolidation of Eligixoperations for the period from the date of the merger to June 30, 2001 whichare included in expenses for the six months ended June 30, 2001.

             Generaland administrative expenses increased to $1.4 million for the six months endedJune 30, 2001 compared to $1.2 million for the six months ended June 30,2000.  This increase was due to theinclusion of approximately $305,000 of expenses related to the consolidation ofEligix operations which are included in expenses for the six months ended June30, 2001 for the period from the date of the merger to June 30, 2001.

             Interestincome decreased to $281,000 for the six months ended June 30, 2001 from$700,000 for the six months ended June 30, 2000. The decrease was due primarilyto lower cash balances available for investment purposes and lower interestrates in 2001.

             Asa result of the above factors and approximately $21.8 million of non-cashEligix merger-related expenses (see Note 9 to the Notes to CondensedConsolidated Financial Statements) charged to expenses, the Company generated anet loss for the six months ended June 30, 2001 of $27.9 million, or $2.12 pershare, compared to a net loss of $4.9 million, or $0.43 per share for thesix  months ended June 30, 2000.

 

**LIQUIDITY AND CAPITAL RESOURCES**

             Sinceits inception, the Company's operations have been funded principally throughthe net proceeds of an aggregate of $81.9 million from sales of equitysecurities. The Company has also received $50.0 million from research anddevelopment and collaboration agreements with Novartis, $4.0 million from analliance agreement with MedImmune and $2.9 million in equipment financing. Theproceeds of the sales of equity securities, equipment financing, and cashgenerated from the corporate collaborations with Novartis and MedImmune havebeen used to fund operating losses of approximately $96.6 million and theinvestment of approximately $5.4 million in equipment and leaseholdimprovements through June 30, 2001. During 1999, the Company extended andincreased its term note with a bank from $500,000 to $1.0 million for certainequipment and fixtures borrowing. There were $369,000 in borrowings outstandingunder this term note at June 30, 2001. In order to provide its consent to theEligix acquisition, the bank has required the Company to secure the outstandingbalance on the note, as well as an amount equal to the total credit availableto the Company through corporate credit cards, with cash funds until the loanis paid off or the Company raises additional funds.  The Company transferred $540,000 into a restricted cash accountduring April 2001 in order to meet this requirement.  As of June 30, 2001, this amount is still restricted.  The Company expects that the restricted cashwill be released from the restricted account as a result of the privateplacement financing completed by the Company on June 8, 2001.  The Company had no significant commitmentsas of June 30, 2001 for capital expenditures.

             Inconnection with the acquistion of Eligix, Inc. (see Note 9 of Notes toCondensed Consolidated Financial Statements), the Company has become aco-borrower on two loan and security agreements.  The first was entered into in September 1997 and allows theCompany to borrow up to $750,000.  Theminimum funding amount is $100,000 with a maximum of five loans.  Loans under the agreement bear interest at afixed rate equal to the yield to maturity for the U.S. Treasury note having aterm equivalent with the loan’s term on the date of funding plus 300 basispoints.  The loans are collateralized bycertain equipment.  There were $332,000in borrowings outstanding under this term note at June 30, 2001.

             Thesecond loan and security agreement was entered into in June 1999 and allows theCompany to borrow up to $2,700,000.  Theminimum funding amount is $35,000.  Eachnote will have a fixed term of 42 months. Loans under the agreement bear interest at a fixed rate equal to theprime rate on the date of commencement plus the average interest rate of asimilar term U.S Treasury note for the week preceding the date ofcommencement.  The loans arecollateralized by certain equipment. There were $1.4 million in borrowings outstanding under this term noteat June 30, 2001.

             TheCompany has entered into sponsored research and consulting agreements withcertain hospitals, academic institutions and consultants, requiring periodicpayments by the Company. Aggregate minimum funding obligations under theseagreements, which include certain cancellation provisions, total approximately$4.9 million, which includes approximately $3.4 million in 2001.

             OnJune 8, 2001 the Company issued and sold to a group of investors in a privateplacement an aggregate of 3,022,457 shares of its common stock, $.01 par valueper share, at a purchase price of $6.30 per share, for net proceeds to theCompany of approximately $17.9 million. The proceeds from this private placement will be used for generalcorporate purposes.

             TheCompany had cash, cash equivalents and short-term investments of $19.1 millionas of June 30, 2001 as compared to $14.9 million as of December 31, 2000.

             TheCompany anticipates that its existing funds should be sufficient to fund itsoperating and capital requirements as currently planned through the secondquarter of 2002. However, the Company's cash requirements may vary materiallyfrom those now planned due to many factors, including, but not limited to, theprogress of the Company's research and development programs, the scope andresults of preclinical and clinical testing, changes in existing and potentialrelationships with corporate collaborators, the time and cost involved inobtaining regulatory approvals, the costs involved in obtaining and enforcingpatents, proprietary rights and any necessary licenses, the ability of theCompany to establish development and commercialization capacities orrelationships, the costs of manufacturing and other factors.

             TheCompany expects to incur substantial additional costs, including costs relatedto research and development activities, preclinical studies, clinical trials,obtaining regulatory approvals, manufacturing and the expansion of itsfacilities. The Company will need to raise substantial additional funds,through additional financings including public or private equity offerings andcollaborative arrangements with corporate partners. There can be no assurancethat funds will be available on terms acceptable to the Company, if at all. Ifadequate funds are not available, the Company may be required to delay, scaleback or eliminate certain of its product development programs or to license toothers the right to commercialize products or technologies that the Companywould otherwise seek to develop and commercialize itself, any of which wouldhave a material and adverse effect on the Company.

**ITEM3.  QUANTITIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISKS**

The Company owns financial instrumentsthat are sensitive to market risks as part of its investment portfolio. Theinvestment portfolio is used to preserve the Company's capital until it isrequired to fund operations, including the Company's research and developmentactivities. All of these market-risk sensitive instruments are classified asheld-to-maturity and are not held for trading purposes. The Company does notown derivative financial instruments in its investment portfolio. Theinvestment portfolio contains instruments that are subject to the risk of adecline in interest rates.

INTEREST RATE RISK: The Company'sinvestment portfolio includes investment grade debt instruments. These bondsare subject to interest rate risk, and could decline in value if interest ratesfluctuate. Due to the short duration and conservative nature of theseinstruments, the Company does not believe that it has a material exposure tointerest rate risk.

 

**PART II. OTHER INFORMATION**

| Item  1. | Legal  Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     | Response:  None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Item  2. | Changes  in Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|     | Response:  On June 8, 2001, the Company issued and  sold to a group of investors an aggregate of 3,022,457 shares of its common  stock, $.01 par value per share, at a purchase price of $6.30 per share, for  net proceeds to the Company of approximately $17.9 million. No person acted  as an underwriter with respect to this transaction. The Company relied on  Regulation D of the Securities Act of 1933, as amended, ("the Securities  Act") for exemptions from the registration requirements of the  Securities Act. |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Item  3. | Defaults  upon Senior Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|     | Response:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Item  4. | Submission  of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     | Response:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|     | The  Company held its Annual Meeting of Stockholders on Monday, July 9, 2001.  The following represents the results of the voting on proposals  submitted to a vote of stockholders at such meeting:                                                                                                                                                                                                                                                                                                                                       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|     | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | To  elect the following persons to serve as Directors of the Company for the  ensuing year. |   |
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  |

 

|             | Number  of Votes |   |
|------------------|------------------|--------|
|             |                  |   |
|             | For              |   | Abstaining |   |
|             |                  |   |  |   |
| James  Foster    | 8,193,092        |   | 722,016 |   |
| Daniel  Hauser   | 8,193,092        |   | 722,016 |   |
| Walter  Ogier    | 8,193,092        |   | 722,016 |   |
| Arnold  Oronsky  | 8,193,092        |   | 722,016 |   |
| Michael  Perry   | 8,193,092        |   | 722,016 |   |
| Elliot  Lebowitz | 8,193,092        |   | 722,016 |   |

 

|   | 2. | To  approve the amendment to the Company's 1997 Stock Incentive Plan increasing  the number of shares of Common Stock available for issuance under the Plan  from 1,500,000 to 3,500,000 . |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| Number  of Votes |
|------------------|
|                  |
| For              | Against |   | Abstaining |   | Unvoted |
|                  |  |   |  |   |  |
| 2,803,093        | 1,994,691 |   | 33,393 |   | 4,083,931 |

 

|   | 3. | To  ratify the selection of Arthur Andersen LLP as the Company's independent  accountants for the current fiscal year. |
|--------|----|------------------------------------------------------------------------------------------------------------------------|

 

| Number  of Votes |   |
|------------------|--------|
|                  |   |
| For              |   | Against |   | Abstaining |   |
|                  |   |  |   |  |   |
| 8,206,322        |   | 698,051 |   | 10,735 |   |

 

The Company held a Special Meeting ofStockholders on Monday, April 30, 2001. The following represents the results ofthe voting on proposals submitted to a vote of stockholders at such meeting:

1.          Toapprove the issuance of up to 5,610,000 shares of BioTransplant common stock tosecurity holders of Eligix, Inc., either in the merger or upon exercise orconversion of Eligix options, warrants and notes assumed by BioTransplant inthe merger, and 990,000 shares of BioTransplant common stock to members ofEligix management as contemplated by the agreement and plan of merger.

| Number  of Votes |   |
|------------------|--------|
|                  |   |
| For              |   | Against |   | Abstaining |   |
|                  |   |  |   |  |   |
| 6,122,628        |   | 315,488 |   | 10,540 |   |

 

| Item  5. | Other  Information   |
|----------|----------------------|
|     | Response:  None |

**ITEM 6.  EXHIBITS ANDREPORTS ON FORM 8-K**

| a)    Exhibits |
|--------------------------|
|                     |
| 10.1                     | Commercial  Lease by and between Cummings Properties Management, Inc. and Eligix, Inc.  (f.k.a. Coulter Cellular Therapies, Inc.). |
| 10.2                     | Master  Loan and Security Agreement, dated as of July 28, 1999, by and between  Eligix, Inc. and Transamerica Business Credit Corporation including Form of  Stock Subscription Warrant to Purchase Common Stock and Promissory Notes in  favor of Transamerica Business Credit Corporation dated August 9, 1999,  December 29, 1999 and January 31, 2000. |
| 10.3                     | First  Amendment to Master Loan and Security Agreement, dated as of May 15,  2001, by and among the Registrant, Eligix, Inc. and Transamerica Business  Credit Corporation. |
| 10.4†               |  Agreement, dated as of June 2, 2000, by and  between Eligix, Inc. and Coulter Pharmaceutical, Inc |
| 10.5†               | License,  Assignment and Supply Agreement, dated as of February 13, 1997, by and  between Coulter Corporation, Coulter International Corporation and Eligix,  Inc. (f.k.a. Coulter Cellular Therapies, Inc.) |
| 10.6                     | Assumed  Eligix, Inc. Amended and Restated Management Equity Incentive Plan, as  amended. |
| 10.7                     | Assumed  Eligix, Inc. 1997 Equity Incentive Plan, as amended. |
| 10.8                     | Employment  Offer Letter by and between the Registrant and Elliot Lebowitz dated  April 4, 1991. |
| 10.9                     | Employment  Offer Letter by and between the Registrant and Mary White-Scharf dated July  30, 1991, as amended on March 31, 1996. |
| 10.10                    | Employment  Offer Letter by and between the Registrant and Richard Capasso dated November  13, 1991, as amended on March 31, 1996. |
| 10.11                    | Employment  Offer Letter by and between the Registrant and James Hope dated June 29,  1992. |
| 10.12                    | Employment  Offer Letter between the Registrant and Mr. Ogier dated May 15, 2001. |
| 10.13                    | Employment  Offer Letter by and between the Registrant and Tara Clark dated May 15,  2001. |
| 10.14                    | Employment  Offer Letter by and between the Registrant and James Embree dated May 15,  2001. |
| 10.15                    | Employment  Offer Letter by and between the Registrant and Judith Sommer dated May 15,  2001 |
| 99.1                     | Pages  21 to 28 of the Registrant’s Annual Report on Form 10-K for the year ended  December 31, 2000, as filed with the Securities and Exchange Commission,  which are deemed to be filed except to the extent that any such portions are  not expressly incorporated herein by reference. |

----

†           Confidentialtreatment requested as to certain portions.

| b)   Reports on Form 8-K |
|------------------------------------|
|                               |
|                               | 1. | Current  Report on Form 8-K filed on May 25, 2001  reporting pursuant to Item 2 the acquisition of Eligix, Inc. and filing  pursuant to Item 7(c) certain exhibits relating to the Eligix acquisition. |
|                               |   |   |
|                               | 2. | Current  Report on Form 8-K filed on June 14, 2001 reporting, pursuant to Item 5, the  issuance of a press releases announcing (i) that the Company had commitments  from selected institutional and accredited investors to consummate a private  placement of approximately 2.83 million shares of newly issued common stock,  at a purchase price of $6.30 per share, for aggregate gross proceeds of  approximately $17.8 million, and (ii) that the Company had completed a $19.0  million private placement of approximately 3,022,457 shares of newly issued  common stock, at a purchase price of $6.30 per share, to selected  institutional and accredited investors. |
|                               |   |   |
|                               | 3. | Current  Report on Form 8-K/A filed on June 26, 2001 reporting (i) pursuant to Item  7(a) the historical financial statements of Eligix, Inc., (ii) pursuant to  Item 7(b) the Unaudited Pro Forma Condensed Combined Financial Information of  BioTransplant and Eligix and (iii) pursuant to Item 7(c) certain exhibits  relating to the Eligix acquisition. |
|                               |   |   |

**SIGNATURES**

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

|                   | BioTransplant  Incorporated                   |
|------------------------|-----------------------------------------------|
|                   | (Registrant)                                  |
|                   |                                          |
|                   |                                          |
| Date:  August 14, 2001 | /S/  RICHARD V. CAPASSO                       |
|                   |                                          |
|                   | Richard  V. Capasso                           |
|                   | Vice  President, Finance and Treasurer        |
|                   | (Principal  Financial and Accounting Officer) |

 

**Exhibit Index**

| **Exhibit No.****** | **Description******                                                                                                                                                                                                                                                                                                                                        |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                | Commercial  Lease by and between Cummings Properties Management, Inc. and Eligix, Inc.  (f.k.a. Coulter Cellular Therapies, Inc.).                                                                                                                                                                                                                         |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.2                | Master  Loan and Security Agreement, dated as of July 28, 1999, by and between  Eligix, Inc. and Transamerica Business Credit Corporation including Form of  Stock Subscription Warrant to Purchase Common Stock and Promissory Notes in  favor of Transamerica Business Credit Corporation dated August 9, 1999,  December 29, 1999 and January 31, 2000. |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.3                | First  Amendment to Master Loan and Security Agreement, dated as of May 15,  2001, by and among the Registrant, Eligix, Inc. and Transamerica Business  Credit Corporation.                                                                                                                                                                           |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.4†          | Agreement,  dated as of June 2, 2000, by and between Eligix, Inc. and Coulter  Pharmaceutical, Inc.                                                                                                                                                                                                                                                        |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.5†          | License,  Assignment and Supply Agreement, dated as of February 13, 1997, by and  between Coulter Corporation, Coulter International Corporation and Eligix,  Inc. (f.k.a. Coulter Cellular Therapies, Inc.)                                                                                                                                               |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.6                | Assumed  Eligix, Inc. Amended and Restated Management Equity Incentive Plan, as amended.                                                                                                                                                                                                                                                                   |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.7                | Assumed  Eligix, Inc. 1997 Equity Incentive Plan, as amended.                                                                                                                                                                                                                                                                                              |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.8                | Employment  Offer Letter by and between the Registrant and Elliot Lebowitz dated  April 4, 1991.                                                                                                                                                                                                                                                      |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.9                | Employment  Offer Letter by and between the Registrant and Mary White-Scharf dated July  30, 1991, as amended on March 31, 1996.                                                                                                                                                                                                                           |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.10               | Employment  Offer Letter by and between the Registrant and Richard Capasso dated November  13, 1991, as amended on March 31, 1996.                                                                                                                                                                                                                         |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.11               | Employment  Offer Letter by and between the Registrant and James Hope dated June 29,  1992.                                                                                                                                                                                                                                                                |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.12               | Employment  Offer Letter between the Registrant and Mr. Ogier dated May 15, 2001.                                                                                                                                                                                                                                                                          |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.13               | Employment  Offer Letter by and between the Registrant and Tara Clark dated May 15,  2001.                                                                                                                                                                                                                                                            |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.14               | Employment  Offer Letter by and between the Registrant and James Embree dated May 15,  2001.                                                                                                                                                                                                                                                               |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 10.15               | Employment  Offer Letter by and between the Registrant and Judith Sommer dated May 15,  2001                                                                                                                                                                                                                                                               |
|                |                                                                                                                                                                                                                                                                                                                                                       |
| 99.1                | Pages  21 to 28 of the Registrant’s Annual Report on Form 10-K for the year ended  December 31, 2000, as filed with the Securities and Exchange Commission,  which are deemed to be filed except to the extent that any such portions are  not expressly incorporated herein by reference.                                                            |

----

†           Confidentialtreatment requested as to certain portions.